Being your own boss may give you the freedom to set your own hours and make your own decisions, but paying taxes is something every business must face. Even conducting a business in the privacy of your home does not excuse you from the responsibility of paying taxes. The following are a list of taxes for which you may be responsible. Retail Sales Tax: Sales tax is a tax paid by the customer, collected by the business owner, and sent into the state along with the appropriate record keeping. Any business that sells merchandise to a customer who will "use or consume" that merchandise is most likely responsible for collecting a tax on those sales. To find out if your business will be required to collect sales tax or to be set up for the collection and remittance of sales tax, contact your state tax authority or department of revenue. Payroll Tax: If you hire people to work in your business, then you will be considered an agent of the government and be expected to submit these taxes based on your employees' wages. Those taxes would include state and federal income taxes and Social Security (FICA) taxes. In addition to the taxes withheld from employees wages, as an employer you are required to match the employee’s contribution to Social Security and to pay unemployment taxes (FUTA). Workers' Compensation is a form of insurance rather than a tax, but an employer is also required to have that coverage on employees. Some businesses hire workers as independent contractors to avoid getting involved in payroll taxes; however, the IRS has a narrow interpretation of what is considered an independent contractor. Before you consider this option, you should consult a tax adviser. The IRS will assess late penalties and fines on businesses that fail to pay payroll taxes on individuals who are considered by the IRS to be employees. For more information on payroll taxes, contact the Internal Revenue Service 1-800-424-1040, or go to the IRS Web site at www.irs.gov. Income Tax: Income earned in the course of doing business is taxable. Your taxes are based on the difference between sales for the year and deductible business expenses. If your expected earnings are high enough, you will be required to make advance payments on a quarterly basis on what you think you will owe the government at the end of the year. Questions concerning the payment of income tax should be addressed to the IRS or your state tax authority or department of revenue. Excise Tax: In addition to the other taxes described above, there are additional taxes imposed on certain goods, services, and businesses. State excise taxes vary from state to state. Excise taxes that may apply to your business are listed below: • Alcoholic beverages: If you manufacture or import alcoholic beverages, in some states you must pay a tax on all sales within the state. • Cigarettes: Retailers of cigarettes are required to pay a tax on all packages sold. • Gasoline and special fuels: Suppliers and distributors of gasoline and special fuels are required to collect tax from purchasers at the time of sale. • Other taxes: Individual states also impose taxes on hazardous waste disposal, hotel occupancy, and real estate transfers, so it is important to check with your state for specific filing information. Questions concerning state excise taxes should be directed to your state's department of revenue. Federal Excise Taxes: The federal government also imposes excise taxes on a limited list of products. Taxable items include such things as firearms, fuel, and luxury items. To receive a detailed explanation of what items are taxable, consult with the IRS. For more information about federal tax requirements, the IRS offers a one-stop site, Small Business and Self-Employed One-Stop Resource.

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